The Court of Appeal has been told that a High Court judge was wrong in making a crucial ruling on bank overdraft charges.

Seven banks and the Nationwide Building Society are appealing against a ruling by Mr Justice Andrew Smith.

He decided the Office of Fair Trading (OFT) had the right to decide if overdraft charges were fair or not.

In court, Laurence Rabinowitz QC, for RBS NatWest, said some of Mr Justice Smith’s reasoning was “not justified” and “schizophrenic”.

Thousands of bank customers are awaiting the result of the case, which was brought to clarify the law after consumers began to reclaim millions of pounds of charges through the courts – many thanks to The Argus Beat The Banks campaign.

Hundreds of people used our guidelines to claim back money from their banks, while many others are awaiting the outcome of the case before progressing with their claims.

Radio producer and teacher Marcus Patrick accrued £840 in bank charges after a payment went into his NatWest account a day late, causing a series of direct debits to bounce.

Mr Patrick said: “I’m a freelancer at the moment so the money is coming in sporadically and things are tighter than they were before, especially with the rise in the cost of living.

“I hope this issue gets sorted out sooner rather than later.”

In court yesterday, Mr Rabinowitz argued the OFT could not challenge the price banks charge for their overdrafts because the 1999 Unfair Terms in Consumer Contract Regulations were not intended to be a method of price control.

He said the OFT told the banks that, in its view, the charges were unfair.

He argued it would have serious consequences for the banks if the OFT was able to enforce its view.

One of the Court of Appeal judges, Mr Justice Waller, asked if the structure of bank charges, where customers in the red subsidise those who always stay in the black, was inherently unfair.

“They are almost bound to be unfair because Peter is paying for Paul,” he suggested.

The appeal is expected to last six days, spread over this week and the next.